Whole Foods’ New Stake in Artisans

What with the stuttering economy and credit in lockdown, it's a scary moment to start or expand a small food business. Heather Kennedy says that's exactly why applications for the loan program she oversees snowballed in 2011. Kennedy is senior administrator of the Whole Foods Local Producer Loan Program, the grocery chain's $10 million initiative providing low-interest loans to small food producers. Since 2006, Whole Foods has lent a total of $6.6 million to 110 companies. Loans range from $1,000 to $100,000 (the average is $50,000), and must be used to expand or improve a vendor's business, not fund normal operating costs.

That's the good news. The bad news is that the Whole Foods loans aren't exactly easy to get. Applicants have to provide the same documentation as they would for a traditional small-business loan, as well as adhere to Whole Foods' production standards (no artificial colors, for instance). But the loans do contain one crucial element that might make them worth jumping through hoops for: product placement at Whole Foods.

The program's setup works to strengthen ties between artisans and their local stores, since loans are not administered through a national agency but carried by the Whole Foods region where the vendor is based. "Once the region actually decides to offer a vendor a loan," Kennedy says, "they're ready to work with that vendor and help them succeed."

There's no requirement that applicants have to already have a relationship with Whole Foods, though Kennedy says 60-70 percent of loan recipients landed their products in Whole Foods before applying for the Local Producer program. In the San Francisco Bay Area, for example, Gelateria Naia has had gelato-scooping counters in Northern California Whole Foods since 2007. But in 2009, the company suddenly felt jilted.

"We were supposed to go into the Whole Foods that opened in Santa Cruz, but at the last minute, we found out they were going to put in a kombucha counter instead," says Trevor Morris, one of Gelateria Naia's cofounders. Morris saw which way the winds were blowing. The company thought about putting its gelato in pints, but the stores' freezers were already packed with competitors. "It seemed so crowded," Morris says.

The answer came in a talk with a Whole Foods bakery coordinator, who suggested that Naia make an ice cream bar to stock in special display cases (pictured). With the help of a $25,000 loan from Whole Foods, Morris and his partners bought a second delivery truck and invested in new molds and freezers. Now, all Northern California Whole Foods stores carry Naia's bars, as do stores in the Rocky Mountain region (Utah, Colorado, Kansas, New Mexico). And Naia's pushing for more.

But Whole Foods doesn't guarantee it'll soak up extra product that results from its loans. On the other hand—and to its credit—Whole Foods doesn't always get first crack at the merchandise, either.

Bill Eldridge, CEO of Maine Milk cooperative MOO Milk, says that last point was a bone of contention when he applied for a $25,000 loan to purchase 24 dairy cows, to be divided between two of MOO's member farms.

"At first, Whole Foods was concerned about this, but ultimately we agreed that the most important thing was the farmer," Eldridge says. "Whole Foods is one of our major customers, but not our only customer." Score one for the little guy.

Former CHOW contributor Joyce Slaton is an editor and writer in San Francisco. She takes her tea with sugar and milk and will sew you an apron if you ask nicely. Follow her on Twitter. Follow CHOW, too, and become a fan on Facebook.